GTN Limited (GTN) Earnings Call Transcript & Summary

Good day, and welcome to the GTN Limited Fiscal Year 2023 Earnings Conference Call. Today's conference call is being recorded. Representing the company today are Scott Cody, Chief Financial Officer and Chief Operating Officer of GTN Limited; and Vic Lorusso, Chief Executive Officer of The Australia Traffic Network. Before I turn the call over to Scott, I would like to remind the listeners that this call is subject to the disclaimer and important information included in the fiscal year 2023 earnings presentation. With that, I'll turn the call over to Scott Cody, Chief Financial Officer and Chief Operating Officer. Scott?

Thanks, Brianna, and thanks, everyone, for joining us this morning. I have with me Vic Lorusso, Chief Executive Officer of our largest operating division, The Australia Traffic Network. I will first read some brief prepared remarks, then we will open the phone lines for your questions. FY '23 was another year of solid progress and results. Group revenue increased 11% compared to FY '22. This is our second consecutive year of double-digit revenue growth. The revenue increase led to a 13% increase in adjusted EBITDA when compared to FY '22. We define adjusted EBITDA as earnings before interest, taxes, depreciation and amortization adjusted to include the noncash interest income generated by the financing component of our long-term station affiliation agreement with Southern Cross Austereo and excludes transaction costs, foreign exchange gains and losses, refinancing losses and gains on lease forgiveness. We consider it appropriate to add the financing component of our long-term station affiliation agreement with Southern Cross Austereo to EBITDA because EBITDA includes a large amount of noncash station compensation expense related to the agreement. And by including both amounts in adjusted EBITDA, we believe it provides a clearer view of the financial impact of the agreement. If both FY '23 and FY '22 results are adjusted to exclude the government subsidies of JobKeeper and Canadian Emergency Wage Subsidy, which ended in FY '22, the onetime costs related to the departure of our former CEO and Managing Director, and the negative EBITDA related to the Global Drone Network start-up losses, adjusted EBITDA would have increased 32% over FY '22. We feel it's appropriate to add back the drone operation losses because although they are a P&L item, for financial statement purposes, we believe they should be considered an investment. Australia revenue increased 13% over the prior year, which was our second consecutive year of strong revenue growth as revenue increased 14% last fiscal year. Our sales significantly outperformed our peer group for FY '23 based on published industry data. The Australia results are most welcome as this is our largest and most profitable market. Canada performed very strongly in FY '23 with revenue increasing 28% compared to FY '22, 25% in local currency, which resulted in the highest revenue ever achieved by the market. This outstanding revenue performance led to significant EBITDA growth with FY '23 EBITDA growing to $5.6 million from $1.2 million in FY '22. We are very encouraged by the progress that Canada has shown as we are once again demonstrating the potential that was evident prior to the pandemic disruption. Brazil achieved our largest revenue increase with revenue increasing 30% compared to FY '22, 19% in local currency. The increase in revenue contributed to additional EBITDA, which was slightly below breakeven for FY '23 representing significant improvement over the past several fiscal years. We continue to be optimistic about the long-term prospects for our Brazil business. United Kingdom revenue decreased 8% compared to FY '22, 6% in local currency. While disappointing, it should be noted that previous year's revenue was the highest ever achieved in the market in local currency, and the U.K. was our only market to post revenue growth in both FY '21 and FY '22. Our revenue in the market was negatively impacted by a difficult trading environment, especially over the last quarter of the fiscal year. Although down from FY '22, our U.K. business continues to deliver solid performance and remains a meaningful contributor to the group's financial results. The strong performance of our core business has allowed us to invest in Global Drone Network whilst still increasing group adjusted EBITDA. During the second half of FY '22, we began offering drone light shows for both advertising, supported shows and cash fees. Drone light shows involve the operation of many drones simultaneously to create images that are viewed by audiences in a manner similar to traditional firework shows. We performed over 40 shows during FY '23, including VIVID, the Australian Open, Christmas at Cockle Bay Wharf and the Sydney Easter Show. We have made great strides in this business, establishing our ability to perform highly entertaining shows and confirming there is a strong demand for these shows. Our plan for FY '24 is to concentrate on staging shows with a high probability of meaningful revenue as we transition into the next phase of our drone business plan. During FY '23, we returned over $11 million to our shareholders in the form of $5.8 million of dividends, final FY '22 and interim FY '23 as well as repurchasing over 11 million of our outstanding shares, over 5% of the shares outstanding at the beginning of the fiscal year for $5.4 million. The group has extended its current debt facility to 22nd December 2025 during the past fiscal year. Previously, the debt facility was scheduled to mature on 30th September 2023. Other than the repayment date, there were no material modifications to the previous debt facility. We repaid $6 million in our debt facility during FY '23. We have repaid $36 million of debt facility over the past 3 fiscal years, reducing the amount outstanding from $60 million to $24 million, while continuing to maintain a pristine balance sheet. At 30th June 2023, our cash balance was $30.6 million, and our net cash, including lease liabilities recognized under AASB 16 was $3.4 million. Today, the company announced that it has recommenced its on-market share buyback of up to 10% of its outstanding shares for a period of up to 12 months. No target share price or minimum repurchase amount has been set. The Board is committed to a meaningful share buyback. With regards to the start of FY '24, revenue for July, August 2023 is largely in line with last year. Revenue from our Brazil and Canada operations continue to show strong growth while Australia and the United Kingdom are pacing behind the same period last year. We have also implemented cost reductions in FY '24, which we expect to have positive impact in future results. However, due to the short lead time on the group sales cycle, it is not possible to forecast revenue for the remainder of FY '24. This ends our prepared remarks. We will now open the lines to questions.

[Operator Instructions] Our first question comes from Conor O’'Prey with Canaccord Genuity.

A question just on the drone business and how maybe the economics of that work. Is that mostly a fixed cost business, the question is, is it driving revenue are there variable costs in there that you're sort of working through a constant gross margin? How does that -- can you maybe help understand a little bit how that works?

Sure. Basically, there is -- it's -- there's more of a variable cost than in our existing traffic business because each show has cost related to it. I'm going to actually let Vic talk to you about that a little bit. But basically, there are more costs for like sites and things like that. Vic, maybe -- would you like to like kind of go through some of the costs that we incur on an average show?

Sure. So for example, if we're doing site-specific shows for events as in VIVID that just passed, obviously, a lot goes into securing the location, the barges, how many drones we actually need, the staff and personnel. So every single show we do from a location point site-specific incurs different fees. The Easter Show, for example, this year, it's the same location, same area for 14 nights. So it's really mainly personnel. There's no leasing of any equipment. It's out there on a big paddock that we take off with 200 drones and returned back. So it's pretty much location and show-specific on what the cost basis is per show.

So do you know approximately what a breakeven level of revenue looks like for that business sort of be zero or breakeven EBITDA level?

Yes -- I mean, not exactly yet. There was -- and the reason I say that is because I think we probably cast too wide of a net last year. So we're still trying to really focus. So on -- I think the breakeven number is lower than it was for FY '23 because of the fact that there's certain things we're just not going to do, and we did a show at the [ Isle of Light ], which may have been great publicity, but it was pretty expensive with no upside to us, revenue-wise. So we're going to be more -- yes, just more selective. I would think rough, rough, rough and probably give you a much better answer in February on this one, probably in the $3 million-ish range, I'm guessing, but that's very, very Lucy Goosey in terms of an answer.

Our next question comes from Killian Murphy with MST Financial.

Just on current trading and the discrepancy between, say, Australia and the U.K. seeing some revenue challenges versus Brazil and Canada. Can you maybe go into a bit more detail on what's going on there, how we can monitor that as the year goes on?

Yes, sure. It's going to sound like a copout somewhat, but the markets have been very tough in both places. I mean -- and there's just -- obviously, in Australia, you've seen a lot of releases from other broadcast and media companies that is just -- it's a very tough market. So we think -- obviously, we can always do better, and we need to focus on getting whatever money is out there, and we have an awesome product and awesome networks. So we should always get more than our fair share. We think a lot of it is market driven, but we're certainly not just sitting around and accepting that as an answer. Vic, do you want to talk a little bit what you guys are trying to do in Australia to try to grow some revenue?

Absolutely. So we've completely reengaged our sales team from a local level Conor and -- from -- Killian from what we've done here in Australia in the last 6 to 8 weeks, reengaging the market with our sales team. Going to market, we offer a complete different product to what radio stations offering content, medium of highly significant audience share; BMAD, breakfast morning, afternoon drive inventory. And just -- yes, it is a tough market, but there are pots of gold out there we've surfaced some in the last couple of weeks that we're encouraged about and excited. We've seen a big uptick back in the automotive trade. Travel's being really good to us. And there's definite opportunities of greenshoots. And we've got, we believe, the best product out there to overcome these times.

That's very helpful. Maybe just one follow-up probably for Scott. Just in terms of cost reductions, just looking at Note 29, the accounts when you break out adjusted EBITDA and you have the other cost, of say, minus $6.2 million for FY '23. What should we be thinking for FY -- is that where we're going to see the cost reduction come through? Is it in that line? Or is it going to be within the division? And can you give us a ballpark range of what you might expect? Or is it too early?

It's a little premature for a range, I think. But yes, I think you're going to see it fairly broad-based between corporate overhead and Australia. The -- those markets were -- obviously, where most of our expenses kind of come through -- Australia where most of our expenses come through. So we think that there's some work to be done there. We have done some work there. And then the corporate overhead with the new kind of way of doing things is going to be at a lower cost for sure.

[Operator Instructions] Seeing no further questions at this time, I will now turn the call back over to Scott Cody.

Thanks. We are pleased with FY '23 performance and remain confident about the future. We have retained our excellent local management teams, maintained a strong balance sheet with ample liquidity, implemented strategic cost reductions and made significant progress with our new growth initiatives. All four of our markets continue to be well position with solid affiliate lineups, strong sales tests and virtually no direct competitors. We believe that everything is in place for continued strong financial performance. We look forward to speaking to you again after the fiscal 2024 half year results.

Thank you for joining us today. This will conclude the conference call. You may now disconnect.